Q If I have made more than $500,000 of non-concessional contributions before the Budget, do I need to withdraw them.
A No. But, you will not be able to make any further non-concessional contributions if the coalition wins the forthcoming election and the legislation is passed.
Q What happens if I make a contribution after Budget night that takes me over the non- concessional cap?
A Anybody who exceeds their cap by making contributions after Budget night will be notified by the ATO. They will then be asked to withdraw the amount contributed above the $500,000 non-concessional cap, along with any associated earnings. If the individual withdraws the excess at this point, the earning on the excess amount will be taxed at their marginal tax rate but they will receive a 15 per cent tax offset for the tax charged in the fund. As I pointed out in a recent column there is really no downside in making contributions between now and the end of the financial year.
Q I understand that while the limits on contributions have been reduced the unused caps can be carried forward. What would happen if I didn’t work in the current financial year.
A The caps on concessional contributions are currently $30,000 a year for people under age 50 and $35,000 a year for people aged 50 and over. These are going to reduce to $25,000 a year but the reduction will not take effect until 1 July 2017 so you have 13 months to contribute using the higher caps. Only amounts of unused concessional from 1 July 2017 will be able to be carried forward.
Q Is there a limit on how the unused caps can be carried forward?
A They will expire if not used within five years after they have accrued. I believe this is unreasonable given the government has stated that the purpose of allowing the caps to be carried forward is to give people who were out of the workforce a chance to catch up.
Q What happens if I contribute more than I am allowed?
A If your concessional contributions in any one year are more than the concessional cap in that year plus unused amounts carried forward, the excess will be subject to excess contributions tax. This will convert them into non-concessional contributions.
Q What sort of income and living standards would I have with a $1.6 million super balance in retirement?
A The government claims that a superannuation balance of $1.6 million could buy an indexed annual income of around $91,000 a year – four times the amount of the single age pension currently around $22,700 year. Whether this is obtainable will depend on the rate of return you can achieve, and the rate you draw down on your fund. Just bear in mind that when a fund is in pension mode, you are required to draw a minimum amount every year. This increases with age. You can play with the numbers by going to my website and looking at the retirement drawdown calculator.
Q Does that cap limit apply to how much I can hold in my retirement phase account? What happens if my retirement account grows in excess of $1.6 million?
A The cap only limits the amount you can transfer into a retirement phase account – it does not apply to the balance on that account. The balance in your pension account can grow above $1.6 million. But keep in mind that minimum drawdowns, probably at least 5%, will still apply, which means the earnings will need to exceed the drawdown rate for the balance to grow.
Q If my pension account balance falls below $1.6 million, can I transfer more in to top it up.?
A You can transfer more into a pension account only if you have not previously exceeded the cap of $1.6 million. But you will be allowed to add to it if you have not met the cap. For example, if you transferred $1.6 million, and the balance fell because of a market crash, you could not top it up. But if another person had transferred only $900,000 into their pension account, they could add a further $700,000 at some stage in the future.